Monetary and Banking Policy and Performance

ECONOMIC REPORT AND BALANCE SHEET 1387

MONETARY AND BANKING POLICY

CHAPTER 14 AND PERFORMANCE

Objectives Stipulated in the 4th FYDP Key Monetary Policies Approved in 1387

he year 1387 corresponds to the In 1387, for the first time, a collection of fourth year of the 4th Five-Year CBI's monetary, credit, and supervisory guide- Development Plan in the context lines titled as "Supervisory-Policy Package of the 20-Year Vision Plan. In of the Banking System" was declared to accordanceT with the 4th FYDP Law, allocation banks and credit institutions. Key monetary of banking facilities by the government and credit policies of 1387 are: in the form of sectoral or regional, as well as priorities concerning sectors and regions Lending rate on the facilities extended shall be carried out by giving incentives to by banks for transaction contracts was set at the banking system through cash subsidies 12 percent. Lending rate on the banking and administered funds. Obligations of facilities extended to SMEs and agricultural banks to provide facilities at lower rates, in projects was set at 10 percent, and the the form of Islamic contracts, are permissible government would pay 2 percent subsidy. provided that they are financed by the government subsidy or administered funds. The minimum expected lending rate on According to the 4th Plan, at least 25 percent facilities extended for participatory contracts of the facilities extended by all banks shall by banks (both public and private) and credit be allocated to water and agriculture sector, institutions was determined at the rates set for and the rise in outstanding scheduled transaction contracts. Furthermore, the real facilities shall be reduced by 20 percent per profit rates of participatory contracts would annum, on average, during this Plan, when be determined at the end of the period. compared with the approved figure for 1383. Furthermore, the government is obliged to The provisional profit rate of term decrease its indebtedness to Central Bank investment deposits with banks and credit and banks through inclusion of the repay- institutions was set within a range of 9 percent for ordinary short-term to 19 percent for ment amounts in annual budgets. Based on 1 the quantitative targets of the 4th FYDP, five-year deposits . Moreover, declaration the average rate of inflation and liquidity of provisional deposit rates in excess of the growth are determined at 9.9 and 20 percent, ones approved by the CBI depends on respectively, during this Plan. Thus, infla- presentation of the feasibility reports of the tion rate and liquidity growth for the fourth underlying projects and approval of the CBI. year of the 4th Plan are set at 7.9 and 18.0 1 percent, respectively. The provisional profit rates of term investment deposits according to the type of deposits are mentioned in the respective table.

MONETARY AND BANKING POLICY Chapter 14 AND PERFORMANCE

The commission of the contracts is set at For better allocation of credits and attain- a maximum of 3 percent, and banks are ment of a balanced growth, the extending of authorized to reduce this rate and improve new loans and facilities to economic sectors the quality of banking services. was set as follows: agriculture, water, and processing industries 25 percent; manufacturing In order to provide an appropriate instru- and mining 33 percent; construction and ment for public daily transactions and to housing 20 percent; trade and services 15 reduce the effects of abundant liquidity percent; and exports 7 percent. Moreover, to resulting from issuance of interbank checks, attain a balanced growth and alleviate regional according to the Cabinet approval, since disparities, Central Bank, in coordination Ordibehesht 1387, Iran-Checks are solely with the Ministry of Economic Affairs and issued by the CBI and the printing costs will Finance, Ministry of Labor and Social be paid by the Central Bank. The CBI will Affairs, as well as President Deputy for receive the 100 percent rial equivalent of the Strategic Planning and Control, will declare mentioned checks from commercial and shares of provinces in credit allocation to specialized banks. banks. In order to increase share of banks' long- term deposits and strengthen sustainability According to CBI monetary policy and of these deposits, the reserve requirement supervisory guidelines, the use of overdraft ratios of banks were determined based on facilities of CBI by banks is restricted to the type of deposits1 as follows: current and resolving short-term liquidity positions by others 20 percent, Gharz-al-hasaneh 10 banks based on banks' provision of liquidity percent, short-term and one-year 17 percent, forecasts. The CBI will regulate and control two- and three-year 15 percent, four-year 13 banks' use of overdraft facilities through percent, and five-year 11 percent. Moreover, both price mechanisms and quantitative the excess reserves of the banks, after quotas. Banks are subject to 34 percent per lowering the different reserve requirements annum penalty rate on using CBI overdraft of banks, will be used in priority order for facilities if these facilities pass certain threshold the purpose of banks' debt payment to the which is administered as a percentage of CBI, loan for productive and investment their savings deposits. Moreover, banks are projects and loan for working capital of prohibited from making any excess financial production units. obligations beyond the financial resources that they mobilize and acquire from the Banking facilities, with the exception of market. Banks should not rely on CBI facilities extended by Bank Maskan's Savings overdraft in their lending operations. Fund and those allocated for low-income groups by other banks, shall not be extended Banks receive Gharz-al-hasaneh deposits for the purchase of housing units, both the and extend Gharz-al-hasaneh loans worth site and the superstructure. The maximum Rls. 100 million per applicant for procurement loan facility and commitment for projects is of essential needs. The commission received set at Rls. 250 million (up to 70 percent of by banks shall be a maximum of 3 percent the estimated price) per residential unit for per annum to finance the costs incurred by the duration of project execution. rendering services and rewarding depositors.

1 Previously, the reserve requirement ratios of deposits held Banks are solely authorized to utilize with commercial and specialized banks were determined at 17 and 10 percent, respectively, while that of Bank Maskan's Gharz-al-hasaneh deposits for Gharz-al- Savings Fund was set at 2 percent. hasaneh facilities; therefore allocation of

ECONOMIC REPORT AND BALANCE SHEET 1387

such deposits for investment purposes shall in assets were the rise in other assets of be prohibited. banks by 26.9 percent (Rls. 255,732.7 billion) and increase in non-public sector indebtedness According to paragraph (h), Article 10, by 12.2 percent (Rls. 202,825.2 billion). On 4th Plan Law, issuance of participation the liabilities side of the banking system, the papers by the Central Bank needs Parliament rise in liquidity by 15.9 percent (Rls. 261,073.0 approval. Considering the limitations imposed billion) was the major contributing factor to on due implementation of open market banks' liabilities growth. operation of CBI by this Article, amendment of this provision and authorization of the CBI with regard to decision making on Figure 14.1. Major economic variables issuance of participation papers were deemed necessary. Thus, the change of authorization (percentage change) for the issuance of participation papers from GDP inflation (1383=100) Parliament to CBI was proposed and approved liquidity by Parliament on Aban 22, 1387 session. 40 This legislation was also approved by the Guardian Council. According to this legislation, 30 the MCC was designated as the authorized entity to give approval for the issuance of 20 participation papers within the framework 10 and principles of the Law for Usury

(Interest) Free Banking approved in 1362 0 and on the occasions when the CBI deems it 1383 1384 1385 1386 1387 necessary to issue the papers for liquidity control and monetary policy purposes. Banking System and the External Sector

In light of issuance of CBI Iran-Checks, In the review year, net foreign assets of and banks' and credit institutions' obligation the banking system picked up by 28.4 percent to purchase these Checks, and in order to (Rls. 133,471.4 billion) to Rls. 604,250.9 encourage banks and credit institutions to billion. This was mostly owing to the rise in supply money to the public; Central Bank, the net foreign assets of the CBI, and that of according to Circular No. MB/2412 dated banks and credit institutions by respectively Shahrivar 28, 1387, authorized banks and Rls. 124,033.5 billion and Rls. 9,437.9 billion. credit institutions to hold up to 2 percentage Frequent withdrawals from the OSF and points of their required reserves in cash foreign exchange purchases from the govern- (including notes, coins, and CBI Iran-Checks). ment, based on the budget law, which were partly sold in the market mostly contributed 1 to increase in Central Bank's net foreign Banking System Performance assets. Reduction of banks' and credit Banking system assets and liabilities institutions' foreign exchange loans and increased by 12.3 percent to Rls. 4,582,488.0 deposits worth Rls. 8,861.9 billion raised billion. The major factors behind the increase their net foreign assets.

1 Banking system includes Central Bank, public commercial and specialized banks, private banks, and credit institutions.

MONETARY AND BANKING POLICY Chapter 14 AND PERFORMANCE

Major Items in Assets and Liabilities of the Banking System (billion rials) Year-end balance Percentage change 1385 1386 1387 1386 1387 Assets 3,082,209.2 4,081,175.5 4,582,488.0 32.4 12.3 Foreign assets 928,552.5 1,184,385.1 1,216,237.0 27.6 2.7 Central Bank 563,869.5 747,284.2 778,560.1 32.5 4.2 1 Public banks 349,748.1 413,931.9 409,829.8 18.4 -1.0 2 Private banks and credit institutions 14,934.9 23,169.0 27,847.1 55.1 20.2 Claims on public sector 256,219.8 280,636.7 291,539.4 9.5 3.9 Claims on non-public sector 1,226,201.0 1,663,725.7 1,866,550.9 35.7 12.2 Others 671,235.9 952,428.0 1,208,160.7 41.9 26.9 Liabilities 3,082,209.2 4,081,175.5 4,582,488.0 32.4 12.3 Liquidity (M2) 1,284,199.4 1,640,293.0 1,901,366.0 27.7 15.9 Deposits and funds of public sector 220,621.4 265,256.0 335,620.6 20.2 26.5 Foreign liabilities 503,521.7 713,605.6 611,986.1 41.7 -14.2 Central Bank 192,674.1 308,654.0 215,896.4 60.2 -30.1 1 Public banks 295,374.7 372,893.5 352,091.6 26.2 -5.6 2 Private banks and credit institutions 15,472.9 32,058.1 43,998.1 107.2 37.2 3 Others 1,073,866.7 1,462,020.9 1,733,515.3 36.1 18.6 1 2 Includes Gharz-al-hasaneh Mehr Iran Bank as of Esfand 1387. Includes Karafarin Bank, Saman Bank, EN Bank, Parsian Bank, Bank Pasargad, Sarmayeh Bank, and the Credit Institution for Development. It also includes Sina Bank since 3 Esfand 1387. Includes capital account of the banking system, advance payments on public sector LCs, and import order registration deposits of the non-public sector.

Banking System and Public Sector In 1387, banking system's net claims on on government guarantees on matured and the public sector fell by Rls. 59,461.9 billion overdue debt by Rls. 14,987.2 billion, and to Rls. -44,081.2 billion. During the review the rise in banks' and credit institutions' port- year, Central Bank's claims on the public folio holdings of public sector participation sector decreased by 1.1 percent, due to 6.6 papers by Rls. 9,633.7 billion. percent reduction in government liabilities; however, public corporations' and institutions' Change in Net Claims of the Banking indebtedness to the CBI rose 14.5 percent. System on Public Sector (billion rials)

Of the total CBI's claims on the govern- 1386 1387 Public sector -20,217.7 -59,461.9 ment, 39.5 percent (Rls. 36,126.8 billion) 1 Central Bank -26,480.5 -65,036.6 was related to the deficit in foreign exchange Commercial and specialized banks 14,289.9 2,121.8 obligations account, which decreased by Private banks and credit institutions -8,027.1 3,452.9 Rls. 4.8 billion compared with the figure for Government -10,788.2 -53,565.2 2 the preceding year. Public sector deposits with Central Bank -27,668.9 -71,357.5 Commercial and specialized banks 24,907.8 14,339.4 the CBI increased by 36.0 percent, owing to 3 Private banks and credit institutions -8,027.1 3,452.9 40.8 percent growth of government deposits. Public corporations and institutions -9,429.5 -5,896.7 Central Bank 1,188.4 6,320.9 Public corporations' and institutions' deposits 4 with the CBI fell by 8.0 percent, however. Commercial and specialized banks -10,617.9 -12,217.6 Private banks and credit institutions 0.0 0.0 1 Advance payments on public sector LCs are not deducted Government indebtedness to banks and from public sector indebtedness. 2 credit institutions surged by 27.1 percent Includes deficit in foreign exchange obligations account. 3 (Rls. 24,620.9 billion) to Rls. 115,502.5 billion Includes public sector participation papers only. 4 in 1387. This was mostly due to banks' call Includes indebtedness for exchange rate differential.

ECONOMIC REPORT AND BALANCE SHEET 1387

Scheduled Facilities Extended according to Rls. 330,968.2 billion. Thus, share of private to Executive By-law on Extension of banks and credit institutions in total facilities 1 Banking Facilities in 1387 extended to non-public sector surged from (billion rials) 16.1 percent at end-1386 to 19.9 percent in Change in outstanding 1387 year-end. Meanwhile, share of public 1 2 Budget ceiling Approved commercial banks declined from 65.2 percent Social and cultural 150 90 to 61.1 percent, and that of specialized banks Production and infrastructure 1,000 250 rose slightly to 19.0 percent at end-1387 Total 1,150 340 from 18.7 percent in the previous year-end. 1 Figures only point to change in outstanding facilities, not Growth rate of facilities extended by banks to the amount of extended facilities. 2 and credit institutions fell sharply from 37.7 The approved figures are equal to actual figures. percent in 1386 to 13.4 percent in 1387.

This was mainly due to measures adopted Banks and Non-public Sector by the CBI within the framework of the Supervisory-Policy Package of the Banking Banking system credit performance in System to balance sources and uses of 1387 reveals that facilities1 extended to non- banks, and prevent their overdraft from the public sector, excluding profit and revenue re- Central Bank. ceivables, rose by Rls. 196,891.6 billion (13.4 percent). Non-public sector enjoyed the highest Figure 14.2. Outstanding facilities extended by share (91.6 percent) of total facilities ex- banking system to public & non-public sectors tended by banks and credit institutions2. Of (trillion rials) these facilities, Rls. 70 trillion (as approved) public sector indebtedness 1 were extended on the basis of the executive non-public sector indebtedness by-law on expansion of SMEs. 2000

Outstanding facilities extended by public 1500 commercial and specialized banks to the non- 1000 public sector, excluding profit and revenue receivables, rose by respectively 6.2 and 500 15.7 percent to Rls. 1,017,612.5 billion and 0

Rls. 316,608.9 billion. Outstanding facilities -1 -5 -9 -1 -5 -9 -1 -5 9 -1 -5 -9 3 3 3 84 84 84 85 85 7 7 7 extended by private banks and credit insti- 138 138 138 13 13 13 13 13 1385-1386-11386-51386-9138 138 138 1 tutions increased remarkably by 39.7 percent Includes profit and revenue receivables.

Outstanding Facilities Extended by Banks and 1 Credit Institutions to Non-public Sector (billion rials) Year-end balance Percentage change Share (percent) 1385 1386 1387 1386 1387 1385 1386 1387 Commercial banks 701,574.1 957,826.6 1,017,612.5 36.5 6.2 65.8 65.2 61.1 Specialized banks 221,926.2 273,629.8 316,608.9 23.3 15.7 20.8 18.7 19.0 Private banks & credit institutions 143,048.2 236,841.6 330,968.2 65.6 39.7 13.4 16.1 19.9 Total 1,066,548.5 1,468,298.0 1,665,189.6 37.7 13.4 100.0 100.0 100.0 1 Excludes profit and revenue receivables.

1 Includes overdue and non-performing loans. 2 Facilities extended to public and non-public sectors exclude profit and revenue receivables.

MONETARY AND BANKING POLICY Chapter 14 AND PERFORMANCE

According to paragraphs (a) and (c), Liquidity Article 10 of the 4th FYDP, at least 25 percent of banking facilities were allocated Liquidity went up by 15.9 percent to to water and agriculture sector. The largest Rls. 1,901,366.0 billion, showing 11.8 per- amount of facilities extended to the non-public centage points reduction compared with sector belonged to construction and housing, the liquidity growth of 1386 (27.7 percent). Liquidity growth was set at 20 percent over domestic trade, services and miscellaneous, th manufacturing and mining, agriculture, and the course of the 4 Plan and 18 percent exports sectors. for 1387. Therefore, the figure of 1387 was 2.1 percentage points below the target set th Composition of outstanding facilities ex- in the 4 Plan. In this year, monetary base tended by banks and credit institutions based surged by 47.6 percent compared with on Islamic contracts indicated that 45.1 30.5 percent growth in 1386, largely owing percent of these facilities were extended in to the rise in net foreign assets of the Central the form of installment sale contracts, as in Bank as well as CBI's claims on banks. the year before. Moreover, money multiplier decreased by 21.5 percent to 3.525 in 1387, compared with the previous year. Composition of Outstanding Facilities Extended by Banks & Credit Institutions 1 Among the factors affecting liquidity to Non-public Sector by Contracts (percent) growth, claims on the non-public sector had Banking system the lion's share of 12.0 percentage points, 1386 1387 and banking system's net foreign assets had Installment sale 48.6 45.1 an increasing share of 8.2 percentage points Mozarebeh 9.0 6.8 Civil partnership 16.0 16.9 in the rise of liquidity. Among the constituents Gharz-al-hasaneh 3.1 3.5 of net domestic assets, banks' net claims on Hire purchase 1.8 1.4 the public sector and other items (net) had Forward transactions 3.9 3.1 Legal partnership 1.4 1.5 negative effects of 3.5 and 0.8 percentage Direct investment 0.9 0.7 points, respectively, on liquidity. It is note- Joaleh 4.4 4.3 2 worthy that lower liquidity growth in 1387, Others 10.9 16.7 Total 100.0 100.0 compared with the year before, was mainly 1 due to sharp reduction in non-public sector Includes profit and revenue receivables. 2 debt to banks and credit institutions. This Includes debt purchase, overdue and non-performing loans, and machinery and housing units transacted under Islamic development was mostly due to measures contracts. and policies of CBI under the monetary

Share of Economic Sectors in Increase in Outstanding Facilities Extended by 1 Banks and Credit Institutions to Non-public Sector (percent) 1386 1387 Public Private banks and Banking Public Private banks and Banking

banks credit institutions system banks credit institutions system Agriculture 17.0 0.2 14.1 13.9 2.3 11.0 Manufacturing and mining 23.6 16.1 22.3 22.0 21.7 21.9 Construction and housing 17.4 9.9 16.1 49.5 2.9 37.8 Exports 1.9 0.0 1.5 6.2 0.0 4.6 Domestic trade, services, and miscellaneous 40.1 73.8 46.0 8.4 73.1 24.7 Total 100.0 100.0 100.0 100.0 100.0 100.0 1 Excludes profit and revenue receivables, and includes increase in outstanding Gharz-al-hasaneh facilities extended to non-public sector.

ECONOMIC REPORT AND BALANCE SHEET 1387

Liquidity and its Determinants Year-end balance Percentage change 1385 1386 1387 1386 1387 Monetary base (billion rials) 279,975.1 365,499.0 539,405.9 30.5 47.6 Money multiplier 4.587 4.488 3.525 -2.2 -21.5 Liquidity (billion rials) 1,284,199.4 1,640,293.0 1,901,366.0 27.7 15.9

policy and the Supervisory-Policy Package Contribution of Factors Affecting which encouraged banks and credit institutions Liquidity Growth to balance their uses of funds with the (percentage points) financial resources that they mobilize from 1385 1386 1387 deposits or from the market. Net foreign assets of banking system 13.7 3.6 8.2 Net domestic assets of banking system 25.7 24.1 7.7 Banks' claims on public sector (net) -3.3 -1.5 -3.5 Figure 14.3. Liquidity growth and its Government -3.0 -0.9 -3.3 determinants Public corporations -0.3 -0.6 -0.2 Banks' and credit institutions' claims 1 (percent) on non-public sector 34.9 31.3 12.0 monetary base money multiplier Others (net) -5.9 -5.7 -0.8 liquidity Liquidity (percent) 39.4 27.7 15.9 50 1 Excludes profit and revenue receivables. 30

10 Monetary Base

-10 Monetary base rose by almost 47.6 percent to Rls. 539,405.9 billion by end-1387. -30 This was mainly due to net foreign assets of 1383 1384 1385 1386 1387 CBI with a share of 33.9 percentage points which was 9.8 percentage points higher compared with the share of this variable in monetary base growth in 1386 (24.1 Figure 14.4. Factors affecting liquidity growth percentage points). The second contributing factor to monetary base growth was the (percentage points) CBI's claims on banks which accounted net foreign assets of the banking system for 27.9 percentage points of monetary other items (net) net claims on public sector base growth, lower by 1.7 percentage points claims on non-public sector compared with the corresponding figure of liquidity 45 the year before (29.6 percentage points).

30 Other items (net) had an increasing effect of

15 nearly 3.6 percentage points on the monetary base growth. Moreover, CBI's net claims on 0 the public sector had a decreasing effect of -15 17.8 percentage points on the monetary base -30 growth, which was mainly owing to rise in 1383 1384 1385 1386 1387 public sector deposits with the Central Bank.

MONETARY AND BANKING POLICY Chapter 14 AND PERFORMANCE

Contribution of Factors Affecting Monetary mentioning that one-year Certificates of Base Growth (percentage points) Deposit are classified as one-year deposits. 1385 1386 1387 CBI net foreign assets 51.5 24.1 33.9 CBI net claims on public sector -12.3 -9.5 -17.8 Composition of Long-term 1 CBI claims on banks 8.6 29.6 27.9 Investment Deposits (percent) Other items (net) -20.9 -13.7 3.6 Year-end Monetary base (percent) 26.9 30.5 47.6 1385 1386 1387 One-year 24.7 36.3 51.2 Two-year 14.4 9.8 4.5 Composition of Liquidity Three-year 4.5 3.8 2.3 Four-year 1.1 1.1 0.9 The share of money in liquidity declined Five-year 55.3 49.0 41.1 from 32.7 percent in 1386 year-end to 27.6 1 Includes Credit Institution for Development. percent at end-1387, while share of quasi- money rose 5.1 percentage points to 72.4 percent compared with the previous year. Provisional Profit Rate of Term 1 In 1387, non-public sector deposits with Investment Deposits banks and credit institutions increased by (% per annum) 11.7 percent to Rls. 1,743,601.8 billion. Of Year-end this amount, Rls. 1,375,883.5 billion was in 1387 Public Private the form of non-sight deposits. 2 3 1385 1386 banks banks Short-term 7 7 9 (max.) 9 The provisional profit rates of term 4 investment deposits with banks and credit Short-term (special) 7-16 7-16 16 institutions were set within a range of 9 Long-term percent for short-term to 19 percent for One-year 7-16 7-16 15 (max.) 17.25 Two-year 7-16 7-16 16 (max.) 17.5 five-year deposits. Among term investment Three-year 7-16 7-16 17 (max.) 18 deposits, one-year deposits had the lion's Four-year 7-16 7-16 18 (max.) 18.5 share, while shares of two-, three-, four-, and Five-year 16 16 19 (max.) 19 five-year deposits in total term investment 1 Profit rates of short-term, short-term (special) and one-year deposits were reduced. Rise in the share of deposits with Bank Maskan are higher than other public one-year deposits was due to the issuance banks by one percentage point. 2 and sale of Rls. 98.3 trillion one-year Effective as of Aban 1, 1387 3 general Certificates of Deposit with a pro- Effective as of Azar 5, 1387, based on letter No. NM/48164 4 visional profit rate of 19 percent. It is worth Based on bank recommendation and CBI confirmation

Monetary Base and its Components (billion rials) Year-end balance Percentage change 1385 1386 1387 1386 1387 Monetary base 279,975.1 365,499.0 539,405.9 30.5 47.6 Net foreign assets 371,195.4 438,630.2 562,663.7 18.2 28.3 Net claims on public sector -18,433.9 -44,914.4 -109,951.0 -143.7 -144.8 Claims on banks 54,887.3 137,694.0 239,696.4 150.9 74.1 Other items (net) -127,673.7 -165,910.8 -153,003.2 -29.9 7.8 Participation papers -21,565.5 -16,371.7 0.0

ECONOMIC REPORT AND BALANCE SHEET 1387

Composition of Liquidity (billion rials) Year-end balance Percentage change Share (percent)

1385 1386 1387 1386 1387 1386 1387 Money 414,544.9 535,707.3 525,482.5 29.2 -1.9 32.7 27.6 1 Notes and coins with the public 61,451.6 79,909.2 157,764.2 30.0 97.4 4.9 8.3 Sight deposits 353,093.3 455,798.1 367,718.3 29.1 -19.3 27.8 19.3 Quasi-money 869,654.5 1,104,585.7 1,375,883.5 27.0 24.6 67.3 72.4 Gharz-al-hasaneh savings deposits 133,522.4 152,305.0 153,946.7 14.1 1.1 9.3 8.1 Term investment deposits 707,100.5 915,984.5 1,177,644.1 29.5 28.6 55.8 62.0 Miscellaneous deposits 29,031.6 36,296.2 44,292.7 25.0 22.0 2.2 2.3 Liquidity (M2) 1,284,199.4 1,640,293.0 1,901,366.0 27.7 15.9 100.0 100.0

1 In 1387, it includes the balance of CBI Iran-Checks with the public.

Sources and Uses of Commercial Banks Funds Non-public sector deposits with commercial overdraft from the Central Bank, raised these banks grew by 5.1 percent (Rls. 54,629.9 banks' indebtedness to CBI by 89.2 percent billion). Sight and non-sight deposits of com- (Rls. 74,491.8 billion) to Rls. 157,971.4 billion mercial banks decreased by 22.0 percent, at end-1387, compared with the previous year. and increased by 21.7 percent, respectively. Commercial banks' blocked resources, Sources and Uses of Specialized Banks mainly owing to Rls. 33,670.7 billion rise in Funds notes and coins kept with commercial banks and Rls. 21,401.4 billion fall in the amount In 1387, non-public sector deposits with of reserve requirement held with the CBI, specialized banks increased by Rls. 10,031.9 went up by Rls. 12,269.3 billion. This was billion. Sight and non-sight deposits with these due to Central Bank's Circular No. MB/2412 banks declined by 8.6 percent and rose by 7.7 on Shahrivar 28, 1387, authorizing banks to percent, respectively. The specialized banks' keep up to 2 percentage points of their legal blocked resources, due largely to the rise in deposits held with the Central Bank in notes, notes and coins kept with specialized banks, coins and CBI Iran-Checks, and reduction grew by Rls. 159.1 billion. Free resources out of reserve requirement ratio for two- to five- of non-public sector deposits with specialized year deposits and Gharz-al-hasaneh deposits. banks went up by Rls. 9,872.8 billion. Total Moreover, commercial banks' capital account free resources of specialized banks, including declined by Rls. 6,206.0 billion, and public other sources (indebtedness to the CBI and sector deposits and funds rose by Rls. 4,912.8 other banks), surged by Rls. 43,950.4 billion. billion. Non-public and public sector indebted- Of this figure, specialized banks' claims on ness went up by Rls. 59,861.4 billion and non-public and public sectors increased by Rls. 1,798.2 billion, respectively. Thus, com- Rls. 42,979.1 billion and Rls. 971.3 billion, mercial banks' deficit reached Rls. 22,559.7 respectively. Central Bank's claims on spe- billion in 1387, up by Rls. 20,592.2 billion cialized banks rose 42.8 percent (Rls. 22,419.8 compared with the figure for 1386. This billion) to Rls. 74,810.5 billion at end-1387, deficit, which was mostly financed through compared with the preceding year.

MONETARY AND BANKING POLICY Chapter 14 AND PERFORMANCE

Banking Sector Developments The major developments in the banking • Guideline regarding the establishment, sector in 1387 are: operation, oversight, and the closure of Iranian banks' representative offices abroad; Section one- Major developments regarding regulations, by-laws, guidelines, circulars, and • Guideline regarding the establishment, amendments: operation, oversight, and the closure of foreign banks' representative offices in Iran; • CBI guideline on accounting procedures for Iran-Checks; • Amendment of the by-law regarding the credit institutions' resources of overdue, • Guideline on electronic wallet; past due and doubtful loans and facilities;

• Guideline on credit institutions' write-off; • Amendment of the guideline regarding the accounting procedures for investment • Guideline on syndicated loans and deposits' final profit with imputation for facilities; agency fees of banks in the utilization of deposits; • Guideline on the opening of current (checking) account for banks' customers; • Amendment of the guideline regarding documentation and registration of ac- • Guideline on Article 15 of CBI's counting records related to foreign exchange Supervisory-Policy Package regarding the operations; facilities adjustable (floating) rate in civil partnership contracts of banks and credit • Guideline on effective management of institutions; sovereign credit risks;

• Guideline on paragraph 3, Article 6 • Regulations on transformation of of CBI's Supervisory-Policy Package of mortgage claims of credit institutions to the Banking System regarding development mortgage-backed securities; banks; • Guideline on identification of credit • By-law regarding the establishment and institutions' clients and the amendment of operation of foreign banks' branches in Iran; the guideline on the requirements of the receipt of tax/economic code from legal • Guideline regarding the establishment, entities; operation, oversight, and the closure of foreign banks' branches in Iran; • Regulations regarding the opening of bank accounts for foreign residents in Iran. • Guideline regarding the establishment, operation, oversight, and the closure of Section two- The major activities related Iranian banks' subsidiaries abroad; to the issuance of license:

• Guideline regarding the establishment, • Issuance of license for two newly operation, oversight, and the closure of Iranian established Iranian banks (Gharz-al-hasaneh banks' branches abroad; Mehr Iran Bank and Sina Bank);

ECONOMIC REPORT AND BALANCE SHEET 1387

• Issuance of agreement in principle for branches, counters, and representative offices, the establishment of two banks (Tat Bank increased by 0.9 percent to 18,874. Bank and Bank Day); Saderat Iran and Bank Melli Iran held 18.4 and 18.3 percent of these units, respectively, • Issuance of license for the establish- and together accounted for the highest ment of two credit institutions (Shahr Credit number of domestic banking units. Institution and Sina); Banking Units • Issuance of agreement in principle for the establishment of nine credit institutions; 1385 1386 1387 Domestic branches 17,858 18,662 18,824 • Issuance of license for the establishment Commercial banks 14,520 14,991 14,877 of 11 leasing companies; 1 Specialized banks 2,897 2,991 3,081

2 • Issuance of license for the establishment Private banks 441 680 866 and operation of nine credit cooperatives (credit unions); Foreign branches 47 49 50 Total 17,905 18,711 18,874

• Issuance of license for the establish- 1 Figure for 1387 excludes Gharz-al-hasaneh Mehr Iran Bank. 2 ment of an independent subsidiary branch of Figure for 1387 excludes Sina Bank. Tejarat Bank in the Republic of Belarus;

• Issuance of license for the establishment The number of banking network em- of an independent unit (cross-border agent) ployees rose 3.3 percent to 188,818 persons. named First East Export Bank (FEE Bank) Number of public commercial banks' em- with $50 million capital in Labuan Island, ployees decreased by 0.5 percent and that of Malaysia; specialized banks increased by 15.0 percent. The number of private banks' employees went • Issuance of license for the establishment up by 31.9 percent. The average number of a joint bank (Iran-Syria Bank) in Syria. of employees at each banking unit was 10.0 persons, indicating a slight growth as Number of Banking Units compared with the corresponding figure of the previous year (9.8 persons). Moreover, The total number of Iranian banking units the ratio of population to each (domestic) both in the country and abroad, including banking unit reached 3,856 persons.